What do we mean when we state that a particular principal-agent payment scheme is inefficient?
A) The principal and agent could find another agreement that would increase the sum of the owner's revenue and the worker's payment.
B) The agreement involves the highest level of effort for the worker.
C) The agreement leads to the lowest level of revenue for the owner.
D) The sum of the income taxes paid by the owner and the worker is too high.

Question

Quizplus · Accepted Answer

An inefficient principal-agent payment scheme implies that there is an alternative agreement that could make both the principal (owner) and the agent (worker) better off, by increasing the total of the owner's revenue and the worker's payment, without necessarily increasing effort or reducing revenue in a way that benefits both parties.

What Do We Mean When We State That a Particular